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In an April 30, 2007 opinion, the U.S. Supreme Court held the Federal Circuit incorrectly applied the "teaching, suggestion, or motivation" (TSM) test in reversing a grant of summary judgment of invalidity for obviousness of a patent claim directed to an adjustable pedal assembly for vehicles. The Supreme Court concluded that the Federal Circuit addressed the obviousness issue in a narrow, rigid manner inconsistent with 35 U.S.C. § 103 and Supreme Court precedent. Because of convincing evidence that a prior art reference taught nearly the entire subject matter of the contested claim, and that the only limitation not taught by the prior art reference was well within the grasp of a person of ordinary skill in the relevant art, summary judgment of invalidity was appropriate, the Federal Circuit's judgment was reversed, and the case was remanded for further proceedings.

Teleflex sued KSR, a competitor, in the U.S. District Court for the Eastern District of Michigan alleging infringement of U.S. Patent No. 6,237,565 ("'565 Patent"), which is directed to an adjustable pedal assembly that includes an electronic pedal position sensor. On a motion for summary judgment of invalidity, KSR argued that asserted claim 4 of the '565 Patent was largely taught by U.S. Patent No. 5,010,782 to Asano ("Asano") and that the only feature not taught by Asano - mounting a modular sensor on a fixed pivot point of the pedal - was obvious. The District Court agreed, after applying the framework for the obviousness inquiry enunciated in Graham v. John Deere Co., 383 U.S. 1, 17-18 (1966), which requires an analysis of (1) the scope and content of the prior art, (2) the level of ordinary skill in the art, (3) the differences between the prior art and the claimed invention, and (4) the extent of any objective indicia of non-obviousness, and finding that KSR satisfied controlling Federal Circuit precedent requiring application of the TSM test, i.e., that in order for a claim to be rendered obvious, there must be some teaching, suggestion, or motivation to combine prior art teachings either in the prior art itself, the nature of the problem, or the knowledge of those of ordinary skill in the art. The Federal Circuit reversed the grant of summary judgment, holding that the District Court did not properly apply the TSM test because it failed to make "findings as to the specific understanding or principle within the knowledge of a skilled artisan that would have motivated one with no knowledge of the invention" to make the combination in the manner claimed.

The Supreme Court reversed the Federal Circuit's decision in a unanimous opinion written by Justice Kennedy. In contrast to the "rigid approach" taken by the Federal Circuit, the Supreme Court emphasized that its prior cases have set forth an expansive and flexible approach to determining obviousness. Deriving from the "functional approach" of Hotchkiss v. Greenwood, 11 How. 248 (1851), the Supreme Court explained that the Graham factors provide a broad inquiry and invited lower courts to look at secondary considerations, such as commercial success, long felt but unsolved needs, and the failure of others.

The Supreme Court reiterated that the combination of familiar elements according to known methods is likely to be obvious when it does no more than yield predictable results. The Court also noted that if a technique has been used to improve a device, and a person of ordinary skill in the art would recognize that it would improve similar devices in the same way, using the technique is generally obvious unless its actual application is beyond the person's ordinary skill. While recognizing it will often be necessary to consult a variety of sources to determine whether there was an apparent reason to combine known elements in the manner claimed, the Court was careful to point out that this analysis "need not seek out precise teachings directed to the specific subject matter of the challenged claim, for a court can take account of the inferences and creative steps that a person of ordinary skill in the art would employ."

Importantly, the Court noted that the TSM test was not necessarily inconsistent with the Graham analysis or other Supreme Court precedent. Indeed, the Court recognized that the TSM test is useful in that it captures a helpful insight: the reason prompting a person to combine elements independently known in the prior art in a new way is an important consideration. The Federal Circuit erred, however, because it transformed this insight into a rigid formula, improperly shifting the focus of the inquiry from the objective reach of the claim to the particular motivation or avowed purpose of the patentee.

The first error identified by the Supreme Court in the Federal Circuit's reasoning was the holding that courts and examiners should look only to the problem the patentee was trying to solve. The question is not whether the combination was obvious to the patentee but whether the combination was obvious to a person with ordinary skill in the art. Under the correct analysis, "any need or problem known in the field at the time of invention that is addressed by the patent can provide a reason for combining the elements in the manner claimed." The second error identified by the Court was the Federal Circuit's "assumption that a person of ordinary skill attempting to solve a problem will be led only to those elements of prior art designed to solve the same problem." The Supreme Court explained that "[c]ommon sense teaches, however, that familiar items may have obvious uses beyond their primary purposes." Further, this assumption ignores the likelihood that during the inventive process one of ordinary skill in the art may consult and synthesize the teachings of multiple references, like putting together pieces of a puzzle. Recognition that the person of ordinary skill in the art has at least a modest amount of ordinary creativity also shows that where a combination of prior art elements is more a product of ordinary skill and common sense than of true innovation, proof that a combination is "obvious to try" may be sufficient to establish that the "invention" is obvious.

Applying these legal standards to the facts of the case, the Supreme Court concluded, like the District Court, that claim 4 of the '565 Patent was obvious. Considering that there was a strong incentive in the marketplace to convert mechanical pedals to electronic pedals, the Federal Circuit considered the issue too narrowly by inquiring as to whether one of ordinary skill in the art writing on a blank slate would have added a prior art sensor to the Asano pedal assembly. Rather, the proper question should have been whether a pedal designer of ordinary skill, facing the wide range of needs created by developments in the field, would have seen a benefit to upgrading Asano with a sensor. In view of the cumulative teachings of the prior art references, the Court concluded, the concept and benefit of adding an electronic sensor to the Asano pedal was indeed obvious. Accordingly, the judgment of the Federal Circuit was reversed.

For the full opinion, see: http://www.supremecourtus.gov/opinions/06pdf/04-1350.pdf

On April 30, 2007, the U.S. Supreme Court ruled that Microsoft is not liable for patent infringement based on providing from the United States a "master version" of its Windows operating system that is subsequently replicated and installed on computers assembled abroad. In reaching its decision (by a vote of 7-1, with Chief Justice Roberts not participating), the Court recognized that 35 U.S.C. § 271(f) is the exception to the rule that U.S. patent law does not cover extraterritorial infringement. For this reason, the Court interpreted § 271(f) narrowly, leaving "to Congress' informed judgment any adjustment of § 271(f) it deems necessary or proper."

AT&T sued Microsoft for infringement of U.S. Reissue Patent No. RE 32,580, which claims a computer used to digitally encode and compress recorded speech. Among the products that AT&T accused of infringement are foreign-assembled computers on which the Windows operating system has been installed. The parties agreed that the Windows operating system is capable of facilitating the digital encoding and compression of recorded speech, but that the operating system could not be found to infringe unless combined with a computer. With respect to the accused computers, Microsoft provides a master version of Windows to computer manufacturers and replicators outside the United States via master disk or electronic transmission supplied from the United States. That master version is then replicated and replicated copies of the operating software are installed on the accused foreign-assembled computers. AT&T argued that the Windows operating system provided by Microsoft is a "component" within the meaning of § 271(f).

In response, Microsoft argued that only a tangible computer-readable form of its Windows operating system is capable of being combined and, therefore, a component under § 271(f). Microsoft also argued that the master version of its operating system that it supplies from the United States cannot be a "component" under § 271(f) because that master version is never installed, and thereby "combined," with the accused foreign computers. Instead, only foreign-made copies of the Windows operating system are loaded onto the accused foreign-made computers.

The district court rejected Microsoft's arguments, reasoning that components under § 271(f) are not limited to tangible structures, and holding that copies replicated abroad can be components in light of the patent statute's purpose of prohibiting the circumvention of infringement through exportation. AT&T Corp. v. Microsoft Corp., 71 U.S.P.Q.2d (BNA) 1118 (S.D.N.Y. 2004). A split panel of the Court of Appeals for the Federal Circuit affirmed the district court's finding of infringement. AT&T Corp. v. Microsoft Corp., 414 F. 3d 1366 (Fed. Cir. 2005). The Supreme Court granted certiorari to address two questions: (1) when does software qualify as a "component" under § 271(f); and (2) did Microsoft supply components in this case from the United States?

First, the Supreme Court found that software must be in computer-readable form to be a component. The parties disagreed as to the stage at which software becomes a component. AT&T argued that software in the abstract (instructions themselves detached from any tangible medium) could qualify as a component. Microsoft, in contrast, argued that only a computer-readable copy of software, not software in the abstract, can be a component. The Supreme Court agreed with Microsoft and found that "[a]bstract software code is an idea without physical embodiment, and as such, it does not match § 271(f)'s categorization: 'components' amenable to 'combination.'" The Court focused on the fact that only a "computer-readable 'copy,' e.g., on a CD-ROM" can be combined as required of a component under § 271(f).

Second, the Supreme Court held Microsoft did not supply a component under § 271(f). The Court found that only software that actually is supplied from the United States, as opposed to copies thereof, can "trigger § 271(f) liability when combined abroad to form the patented invention at issue." A basis for the Court's finding is the fact that "[t]he absence of anything addressing copying in the statutory text weighs against a judicial determination that replication abroad of a master dispatched from the United States 'supplies' the foreign-made copies from the United States within the intendment of § 271(f)." The Court also relied on the general presumption against extraterritorial application of U.S. patent laws and sought to avoid the possibility that a single act of supply could create a "springboard for liability" for subsequent conduct abroad.

A recurring theme of the Supreme Court's opinion is that Congress has the power to amend U.S. patent law if it believes the conduct at issue should constitute actionable patent infringement. The Court recognized that its opinion created a loophole for software makers, but it was reluctant to engage in "dynamic judicial interpretation of § 271(f)." Instead, the Court stated that the "'loophole' . . . is properly left for Congress to consider, and to close if it finds such action warranted." It remains to be seen whether the Supreme Court's opinion will encourage Congress to address the issue of extraterritorial application of U.S. patent law in the on-going debate over patent reform.

For the full opinion, see: http://www.supremecourtus.gov/opinions/06pdf/05-1056.pdf

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